Can We Really Observe Hyperbolic Discounting?

24 Pages Posted: 17 Apr 2002

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Arijit Mukherji

Deceased

Date Written: March 2002

Abstract

This paper proposes a new, more robust, experiment to test for the presence of hyperbolic discounting. Recently, a growing literature has studied intertemporal choice when individuals discount the future hyperbolically. These preferences generate dynamically inconsistent choices, in contrast with the usual assumption of exponential discounting, where this issue cannot arise. Hyperbolic discounting is justified based on experimental evidence of individual self-control problems. We argue that this interpretation depends crucially on the absence of uncertainty. We show that, once uncertainty is included, the observed behavior is compatible with exponential discounting. We then test for the presence of hyperbolic discounting in a new experiment that controls for uncertainty. The experiment offers two choice sets, the second being a strict subset of the first. Exponential discounters will (possibly weakly) prefer the largest one. Hyperbolic discounters, in contrast, will (strictly) prefer the second set because its design makes it equivalent to a commitment technology. The experiment is conducted on a sample of undergraduate students. Our results suggest that hyperbolic behavior is more difficult to find than implied by previous experiments.

Suggested Citation

Fernández-Villaverde, Jesús and Mukherji, Arijit, Can We Really Observe Hyperbolic Discounting? (March 2002). PIER Working Paper No. 02-008. Available at SSRN: https://ssrn.com/abstract=306129 or http://dx.doi.org/10.2139/ssrn.306129

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

3718 Locust Walk
160 McNeil Building
Philadelphia, PA 19104
United States
215-898-1504 (Phone)
215-573-2057 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Arijit Mukherji

Deceased

N/A

Register to save articles to
your library

Register

Paper statistics

Downloads
412
Abstract Views
2,468
rank
70,343
PlumX Metrics